The German energy association BDEW commissioned a NERA team led by Managing Director Tomas Haug to review the methodology specified in the German network charges ordinances to calculate the return on excess equity.*
Mr. Haug and NERA Consultant Lorenz Wieshammer prepared a report for BDEW that identifies network operators’ cost of debt as a relevant benchmark. The study provides several pieces of evidence:
Mr. Haug and Mr. Wieshammer conclude that the current methodology leads to downwardly biased results. They suggest alternatives methodologies for calculating the return on excess equity.
*The share of equity that earns the return on equity is capped at 40% in Germany. If a network operator’s equity share exceeds this threshold, any excess equity is remunerated at the return on excess equity.